An ‘enlightened fiduciary’ model should be put in place for institutional investors to parallel the new duties of company directors introduced in 2006, said FairPensions. Their new report argued that this would provide a valuable ‘nudge’ towards sustainable, long-term investment to overcome narrow interpretations of fiduciary obligation which emphasise profit maximisation at the exclusion of all other factors, including financial system stability.

The report, Protecting our best interests: Rediscovering Fiduciary Duty, said intense debates about corporate governance since the financial crisis have paid insufficient attention to the underlying savers whom fiduciary obligations exist to protect.

Christine Berry, author of the report said: “There is a mismatch between the ethos of ‘enlightened shareholder value’ that underpins directors’ duties under the Companies Act and the perception of many investors that their fiduciary duties legally prevent them from taking a responsible long-term approach. The government must rectify this mismatch if it wants to promote sustainable growth.”

FairPensions argued that current interpretations of fiduciary obligation have lost sight of the core ‘duty of loyalty’ to beneficiaries. The complex chains of financial intermediaries involved in today’s pension investment have introduced widespread conflicts of interest which are inconsistent with a strict understanding of fiduciary obligation. The report called on regulators to confirm that asset managers, investment consultants and insurance companies providing pension products are all fiduciaries by law.

Catherine Howarth, CEO at FairPensions, commented: “Despite the hard work of many pension trustees, there is no denying the disappointing returns of the last decade. The 2008 financial crisis was a particularly nasty shock. Our report challenges the view that what happened was just bad luck. Rather, the detailed research behind this report suggests we urgently need to shake up what is expected of the layers of agents involved in investing other people's pension savings.”

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